Ep. 31 The Tether Came Loose (w/ Nic Carter)
In this episode of The Unhashed Podcast: Bitfinex and Tether are under the gun AGAIN! But are the alarmists right to sound the gongs this time? Someone has been stealing ETH from wallets with private keys of...1. Yes that’s right. Not just 1 but many people are using the a private key of 1 to store their Eth and someone decided they would take it. Could there be a dumber private key? And...the bitcoin blockchains fees are now more valuable than the bitcoin cash block rewards. Does this spell certain doom for bitcoin due to its relatively high fees, or is that line of thinking just a reformulation of the classic Yogi beara line “No one goes there anymore; it’s too crowded”? Nic Carter joins us this week, so get ready!
Weekly News Wrap Up:
Earlier this week, United States-based security consulting firm Independent Security Evaluators (ISE) published a report on private keys for the Ethereum blockchain. Despite establishing around 700 weak private keys that are being regularly used by multiple people, the researchers found a “blockchain bandit” who has managed to collect almost 45,000 ether (ETH) by successfully guessing those frail private keys. How? In Ethereum, Bitcoin (BTC) or any other major blockchain that supports ECDSA, private keys are represented by 256-bit numbers. The ISE narrowed it down to eight 32-bit “sub-regions” in the 256-bit key space during their research, because brute forcing a private key within a larger region is meant to be a statistical improbability. Those eight sub-regions contained an overall amount of 34 billion weaker keys derived using faulty random number generators, which the ISE subsequently scanned. And this only took one day. Initially, the ISE specialist found that the private key of “1” had been involved in several thousand transactions.
Bitfinex came under heat this week when the Attorney General in New York accused Bitfinex of using Tether’s cash reserves to cover a funding gap with reserves meant for backing the stablecoin. The statement read: “Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.” After the accusation was made, at least $90 million worth of assets had left the Bitifinex wallets. On April 27th, Bitfinex shot back with a letter to customers, categorically denying the charges, stating that the attorney general’s claims were “filled with inaccuracies and false assertions….In particular, we want to assure you that the allegation that we have ‘lost’ $850 million is categorically false. And rest assured that we will vigorously challenge the false assertions made by the New York Attorney General’s office in their filing.” In light of the controversy, two of iFinex’s (the parent company to bitfinex and tether) biggest shareholders, Zhao Dong and Tian Jia claim they are not concerned. Dong wrote to coindesk, “What the information I have right now is there are no losses, but the funds belong to clients. If the U.S. government seized the funds, they should know, the funds [don’t] belong to Bitfinex or Tether, it’s the clients’ money. Jia also wrote that Bitfinex is “trying to get [the funds] back by approaching Panama and the [U.S. Attorney General].”
In a development that will surely cause ridicule from bitcoin cashers and rejoicing among bitcoiners, Bitcoin’s Transaction Fees are Becoming More Valuable Than Bitcoin Cash’s Block Rewards. In a blog post from Kyle Torpey, “if the monetary policies in Bitcoin and Bitcoin Cash are to be preserved, transaction fees will be the key incentive for miners to secure these networks over the long term. Transaction fees become much more important on these networks as the block subsidy (the new bitcoin or bitcoin cash awarded to miners) is slowly removed over time. Bitcoin and Bitcoin Cash developers have different views on how these transaction fees will accrue. On Bitcoin...there will be fewer transactions with higher fees, and with Bitcoin Cash...many on-chain, lower-fee transactions. Recently, the daily transaction fees collected by Bitcoin miners have become more valuable than the daily block rewards collected by Bitcoin Cash miners. This means on some days the Bitcoin network would be more secure than the Bitcoin Cash network even if the 12.5 BTC per block subsidy were removed and the monetary supply were capped right now.”
Ruben posted an idea to the Bitcoin-dev mailing list to improve SPV. It utilizes forks in Bitcoin to detect potentially invalid blocks, and then proceeds to download and verify them, making SPV more secure against a dishonest mining majority. The idea once again revived the debate whether SPV should be encouraged at all, or if it damages the incentive for users to run a full node.
One Final Note:
Make sure you are storing your crypto on something secure like aLedger and backing it up on something sturdy like aBillfodl. If you buy these items through the links above, we do take a cut of the profits but it also helps support the show - a win/win for all involved.